Ethanol Rises Versus Gasoline as Motor Fuel Slumps, Corn Gains

Feb. 26 (Bloomberg) -- Ethanol’s discount to gasoline fell
the most in more than three months as the motor fuel slumped and
corn rose.

The spread narrowed 10.45 cents to 58.56 cents a gallon,
the smallest difference since Feb. 4 and the biggest one-day
contraction since Nov. 7. Gasoline fell to the lowest level in a
month, while corn rose to the highest price since Feb. 8.

“Corn is helping ethanol gain its strength,” said Dan
Flynn, a trader at Price Futures Group in Chicago. “Right now
we’re pricing it in that it could be a tough year. There are a
lot of things out there that seems supportive for the market.”

Denatured ethanol for March delivery advanced 2.5 cents, or
1.1 percent, to $2.396 a gallon on the Chicago Board of Trade,
the highest price since Feb. 11. Futures have advanced 9.4
percent this year.

Gasoline for March delivery plunged 7.95 cents, or 2.6
percent, to $2.9816 a gallon on the New York Mercantile
Exchange, the steepest decline since Nov. 7 and the lowest price
since Jan. 29. The contract covers reformulated gasoline, which
is made to be blended with ethanol.

At least 19 ethanol plants have shut since June as drought
in the Midwest scorched corn crops and raised production costs,
according to the Renewable Fuels Association in Washington.
Biofuel Energy Corp. said last week it would keep a Fairmont,
Minnesota, ethanol mill closed until this year’s corn harvest.

The Energy Information Administration reported last week
that ethanol production was 17 percent lower than the record
963,000 barrels a day in December 2011.

Crush Spread

Corn for March delivery rose 11.5 cents, or 1.7 percent, to
$7.05 a bushel in Chicago. One bushel makes at least 2.75
gallons of ethanol.

The corn crush spread, representing gains or losses from
turning a bushel of corn into ethanol, was minus 17 cents,
compared with minus 15 cents yesterday and minus 35 cents on
Dec. 31. The amount doesn’t include revenue from the sale of
dried distillers’ grains, a byproduct of ethanol production,
which can be fed to livestock.

A government mandate calls for U.S. refiners to use 13.8
billion gallons of ethanol this year and 14.4 billion next year.

The U.S. will produce about 13 billion gallons of the fuel
this year, short of the government targets, according to the
Energy Information Administration’s Feb. 12 Short-Term Energy
Outlook.

Using RINs

Refiners will have to draw from a reserve of Renewable
Identification Numbers, a mechanism used to help the
Environmental Protection Agency to track compliance, to meet the
requirements, Bloomberg New Energy Finance said yesterday.

In cash market trading, ethanol rose in the major trading
hubs. Ethanol on the West Coast, the most expensive in the
country, jumped 4.5 cents to $2.575 a gallon, data compiled by
Bloomberg show. The additive increased 2.5 cents to $2.445 on
the Gulf Coast; 1 cent to $2.38 in Chicago; and 2.5 cents to
$2.505 in New York.

West Coast ethanol’s premium to the Gulf Coast jumped to 13
cents, the highest level in a week. Chicago’s discount to New
York Harbor swelled to 12.5 cents, the widest gap since Jan. 30.

Ethanol prices have risen as imports have slowed, according
to EIA data.